Heating costs to rise this winter as cold returns

Jonathan FaheyAP Energy Writer

October 12, 2012

NEW YORK (AP) — Americans will pay more to heat their homes this winter as they feel something they didn’t feel much of last year: cold.

Prices for natural gas, heating oil and other fuels will be relatively stable. But customers will have to use more energy to keep warm than they did a year ago, according to the annual Winter Fuels Outlook from the Energy Department’s Energy Information Administration.

Last winter was the warmest on record. This year temperatures are expected to be close to normal.

Heating oil customers are expected to pay an average of $3.80 per gallon, the highest price ever. That will result in record heating bills, at an average of $2,494. That’s nearly $200 more than the previous high, set in the winter of 2010-2011.

Kathleen Ryan of Cohoes, in upstate New York, is on a payment plan in which she is billed for oil November through May to spread out the costs. But with oil prices high and a hint of winter chill in the air, she is concerned.

“You have no idea what Mother Nature is going to bring,” she said. “They’re already talking about frost this weekend. My costs could double.”

She regrets not switching over to natural gas earlier this year when sewer line work in her neighborhood would have made it easier to run a gas line to her home. But she has a plan to keep a lid on her heating bills. “I’m going to buy a portable heater, an electric heater,” she said.

That could help. Customers who use natural gas, electricity or propane will see lower bills than in a typical winter because of relatively low prices. For example, natural gas should average $10.32 per thousand cubic feet. That’s 0.8 percent higher than last year but 13 percent lower than the five-year average.

“It’s two different worlds. For most families this is still going to be an affordable year, except for those who use oil heat,” says Mark Wolfe, the Executive Director of the National Energy Assistance Director’s Association. “For them, it’s going to be very difficult.”

Rising heating oil costs come at a time when funding for low-income heating assistance is falling. Over the last two years, federal heating assistance funding has been cut to $3.5 billion from $5.1 billion. The number of households receiving assistance has dropped by 1.1 million over the period, according to Wolfe.

Just 6 percent of the nation’s households use heating oil, but they tend to be in some of the coldest parts of the country where heating needs are high, mainly in the Northeast. About half use natural gas for heat and 38 percent use electricity. Five percent of households use propane and 2 percent use wood.

Electricity prices will fall 2.3 percent to 11.4 cents per kilowatt hour, the government estimates. Propane prices will fall 8 percent in the Midwest to $2.02 per gallon and 13 percent in the Northeast to $2.95 per gallon.

Natural gas, propane and electricity prices are relatively low because of a dramatic increase in domestic natural gas production over the last five years. Natural gas is used to generate about one-third of the nation’s electricity and is instrumental in setting the price of electricity. Recently drillers have been increasing production of so-called natural gas liquids, including propane.

Heating oil will hit record prices because it is made from crude oil. Crude is priced globally, and has stayed high because of increasing world demand, worries about supply disruptions in the Middle East, and stimulus programs from central banks around the world that encourage investment in oil and other commodities. Oil has averaged $95.95 per barrel in the U.S. so far this year, up from an average of $94.86 in 2011.

Consumers in the Northeast already have an issue with oil: high gasoline prices. Drivers in New England are paying an average of $3.955 per gallon, up 44 cents from a year ago, according to the Energy Department.

But most of the increase in winter heating costs will be due to cooler weather this winter. East of the Rockies, the weather is expected to be about 2 percent warmer than normal but 20 percent to 27 percent colder than last year. In the West, temperatures were closer to normal last year, so the expected decline for this winter is just 1 percent.